Pay Attention To Taxation

There is not a day goes by without someone floating a new tax proposal.  Governments are gradually going broke and new taxes are their last hope.  God forbid any of them should reduce there spending.  Better to have layoffs in the private sector than in the government offices, I suppose.

Tax policy is a rather odd subject.  Its goal has been expressed as the  taking the most feathers from the goose with the least amount of hissing.  The implementation of the policies is a work of compromise.

If the government takes too much the entire system falters and their spendable resource becomes less.  This leads to some obvious steps.

Be sure there is a good, as in socially required, reason to impose the tax.  People cannot  then complain.  Cigarette taxes, alcohol taxes, gambling and the like fall here.  While the governments profess great concern, they feel none.  This area of taxation is extremely valuable.   In general the demand does not change depending on price and there are few worthy substitutes.  Inelastic demand is good for taxation.

Gasoline taxes generate enormous revenue but there are substitutes and ways to reduce consumption.  With the price of gasoline temporarily low there will be new taxes and they will not go away when the price goes back up.  The tax could be proportional to price so that it automatically goes up as prices rise.  They will suggest you blame the oil companies.

Once we notice inelastic demand some other things come into view.  People prefer security to ambiguity.  Interest, pensions and salaries can therefore be taxed at rates higher than the rates that apply to business income or dividends.  People will choose these regardless.

Taxes are easiest to collect when money is moving around.  Payroll deductions, sales taxes and things like land transfer taxes are easier to collect than “amounts due on filing.”  It remains a mystery to me that there are no estate taxes in Canada and no federal sales tax in the United States.  Both would be hard to avoid, raise substantial money and be present only when money is available.

Please notice that any tax that supports profligate spending in government is unfair.  The money should rather remain in the hands of the people who will spend it as they wish.  No bureaucrat can estimate the micro-economy and therefore any tax that supports their wishes is automatically offside.  They argue that they know better than we, but I have never heard a cogent explanation of how that is true.

I don’t know how many specific taxing and fee grabbing rules there are, but you would have difficulty convincing me that there are fewer than a hundred.

They have not yet begun to tax my memory, but they are well along taxing my patience.  Defending yourself where possible is a worthwhile financial planning goal.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact:  

3 Comments on “Pay Attention To Taxation

  1. If I may add to your article what I have known since 1980 is the fact that in that year the Canadian ITA book was as thick as an inch; and today it’s as thick as 2 inches and nobody yet as of this time has ever raise the question on what constitute the one inch of taxation added to the book. On one hand I blame myself for voting on candidates who cast their votes in favor of amending this and that probation of the ITA on the necessity of taking off what used to be a privilege of a taxpayer. Today, if your annual income is $500,000.00, your take home pay is about $248,000.00 and if you spend that money for you to enjoy what is left, you are again taxed by 13% or in short, your buying power is only 43% of your gross income. A federal election is looming this year and I believe the ax is in our hands to cut spending unnecessarily by voting people into parliament hill who can review the country’s income and expenses and run the system on a profitable basis so that taxpayers may also share in the dividends in the form of reduced taxes.

    • Good point. We have a spending problem not so much a revenue problem. I think Ontario is a bigger problem than the feds but there is no a lot of choice in rotten apples.

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